Par panel against corporates getting bank licences

September 27, 2013 20:53 IST

A parliamentary panel on Friday opposed the new bank licences to corporate houses and voiced concerns over the discretionary power vested with RBI for applying 'fit and proper' criteria for deciding on applications.

The Parliamentary Standing Committee on Finance, headed by former finance minister and BJP leader Yashwant Sinha, finalised its report on the new bank licences at its meeting in New Delhi.

According to sources, the most of members opposed the bank licences going to corporate houses and the same concerns have been reflected in the report which will be submitted to Lok Sabha Speaker Meira Kumar soon.

The members felt that since there is no such practice to give bank licences to corporate houses anywhere in the world, India should not be an exception.

The members also objected the fit and proper criteria, saying it is discriminatory as it gives RBI discretionary powers to accept or reject an application based certain undefined parameters like a scrutiny by the agencies like CBI, ED or Income Tax department.

The members insisted that the guidelines issued in 2001, should be the basis for issuing new bank licences.

The panel also expressed concerns that the "corporate wave" may harm the interest of banking sector in the country. As per the guidelines for grant of new bank licences, RBI can reject or accept an application on the basis of fit and proper criteria.

The members want that there should be clarity on the issue and there should be ambiguity with regard to the applicability of the fit and proper criteria.

As many as 26 applications had been received for bank licences on the close on July 1, 2013. Tata group, India's biggest business group, and firms controlled by billionaires Anil Ambani and Kumar Mangalam Birla are among those which applied for bank licences.

Among public sector units, India Post and IFCI have submitted applications. Microfinance institutions such as Bandhan Financial Services and Janalakshmi Financial, too, have expressed their intention to set up banks.

The RBI had issued guidelines for Licensing of New Banks in the Private Sector on February 22 and came out with clarifications in the first week of June. In the past 20 years, the RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993.

The guidelines were revised in January 2001 based on the experience gained from the functioning of these banks and fresh applications were invited. Kotak Mahindra Bank and Yes Bank were the last two entities to get banking licences from the RBI in 2003-04.

In the 2001 round of guidelines for new licences, the external committee members were C G Somiah, former government auditor CAG, I G Patel, former RBI Governor, and Dipankar Basu, former head of State Bank of India.